The government has announced new rules to try to suppress the spread of the new version of Covid in England.
“Plan B”, which was seemingly off the cards right up until someone in Number 10 was caught maybe or maybe not having a maybe or maybe not legal Christmas party last year, was put into place last night.
The Omicron-era restrictions aren’t as big a deal as last year. But what does all of this stop-start stuff mean for the economy and for your money?
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Let’s have a look.
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The new Covid restrictions aren’t severe – but they aren’t great for sentiment
England has introduced some tighter Covid-19 restrictions. Amid all the furore about the party stuff, it’s worth noting that these moves aren’t all that huge.
From Friday we’ll have to wear face masks in most indoor public venues (we already had to wear them on public transport) but notably not in pubs or restaurants or gyms. From Monday people are being encouraged to work from home "if they can".
And from Wednesday, if you’re the sort of wild young thing (like Finland’s prime minister) who still goes to nightclubs and concerts, you’ll need to present an NHS Covid pass or a negative lateral flow test before you can enter.
None of that is groundbreaking stuff. It mostly just brings England into line with Scotland, Wales and Northern Ireland. A lot of it was already happening given the Omicron outbreak. And the rules in many parts of the rest of Europe are even stricter.
So from an immediate practical point of view, I’m not sure it changes much. From a sentiment point of view, it’s a bit of a downer, let’s be honest. It’s all a marginal impact, but margins matter.
All of these restrictions make the flow of people a little less free and easy. That – to my mind at least – does two things.
Firstly, it’s bad news for companies that rely on people moving around. Travel and leisure stocks and companies that rely on people being out and about, either to have fun or simply to go to work.
This in itself is not necessarily an economy-wide issue. A fiver not spent in Pret will be spent somewhere else. Where it does become a bit trickier is when sectors have their business artificially crimped, but the government is not so keen to step in to fill the gap with the likes of furlough schemes.
Right now that probably doesn’t matter. The restrictions are still sufficiently marginal and the labour market sufficiently short of people that a big rise in unemployment is not the most immediate worry by any means.
But it might well make it harder to get back to “normal” in the longer run. If you’re a business owner and you now have to worry about semi-lockdowns looming every time a new variant of what looks like an endemic disease erupts, you’re going to be very careful about how you invest for the longer term.
This might make central banks think twice about raising rates
What’s the other point? Well, this second point is probably one reason why markets don’t seem to have been overly perturbed by any of this. Tighter lockdowns give central banks more cover to move more slowly on raising interest rates.
For example, the Bank of England is meeting next week to decide on rates. I’m not going to make a call on what they do (it’s not that important anyway), but judging by what the pound’s been doing, investors think a rate rise is less likely now.
Last month the Bank surprised investors when it failed to raise interest rates from 0.1% to 0.25%. Everyone thought that December was a surefire thing as a result of that – particularly as Bank of England boss Andrew Bailey copped a fair bit of flak for the November decision.
Now, however, as Reuters puts it, the plan is “up in the air again”, with some analysts now reckoning that it might be February before the Bank even considers moving.
We’ll see. A lot of this depends on where inflation goes from here. As we’ve been saying for a little while here, there’s a chance that inflation will start to surprise people in the short term by easing off a bit. If that happens at a time when central banks have taken a more hawkish tone, I’m sure we’ll see a fair bit of backslapping.
However, I’m pretty sure that in the not-very-much-longer term, inflation will prove sticky and we’ll then see just how keen central bankers are to tackle it.
We’ll be covering all this and more in forthcoming issues of MoneyWeek magazine – subscribe now if you haven’t already.
